Global Markets Rocked by Geopolitical Shockwave: Weekly Review for June 13, 2025

A Week Redefined by Conflict

The week ending June 13, 2025, will be etched in the memory of global investors as a stark reminder of the primacy of geopolitical risk. What began as a period of cautious optimism, carefully constructed on a foundation of encouraging inflation data from the United States and dovish central bank policy in Europe, was violently upended in the final trading session. The narrative of the week, and potentially the weeks to come, was irrevocably redefined by a single, seismic event: reports of Israeli military strikes on nuclear and military facilities within Iran.¹

The market reaction was immediate, uniform, and severe. A wave of “risk-off” sentiment—a collective flight from assets perceived as vulnerable to economic or political shocks—crashed across global markets, erasing a week’s worth of gains in a matter of hours.¹ The initial optimism, which had seen a global stock index touch a record high and the S&P 500 inch closer to its own peak, evaporated.⁴ In its place, a classic fear-driven rotation took hold.

Global equity indices from New York to Tokyo tumbled, with many ending the week in negative territory.² Crude oil prices surged by approximately 8% on fears of a major supply disruption in the Middle East, a region that accounts for a third of the world’s crude production.⁵ This spike immediately reignited inflation concerns that had only just begun to subside. Consequently, investors stampeded into traditional safe-haven assets. Gold prices climbed, and the U.S. dollar, alongside the Japanese yen and Swiss franc, strengthened significantly as capital sought refuge from the escalating uncertainty.⁸ The week thus served as a powerful lesson in the fragility of market confidence, demonstrating how quickly complex economic narratives can be subordinated to the raw and unpredictable power of geopolitics.

The Global Market Pulse: A Tale of Two Halves

The trading week was a study in contrasts, sharply divided into two distinct periods: a phase of data-driven optimism that lasted from Monday to Thursday, followed by a sudden and dramatic geopolitical rupture on Friday. This bifurcation illustrates the precarious nature of the current investment landscape, where underlying economic fundamentals can be rendered secondary by external shocks.

The Optimistic First Half (Monday-Thursday)

The week commenced on a positive note, with market sentiment buoyed by a series of encouraging economic reports from the world’s largest economy. In the United States, key inflation indicators came in softer than anticipated. The month-over-month readings for both the Consumer Price Index (CPI) and the Producer Price Index (PPI) registered a modest increase of 0.1%, below economists’ consensus forecast of 0.2%.¹ This deceleration in price pressures reinforced the prevailing narrative that the Federal Reserve would have sufficient justification to begin cutting interest rates later in 2025, with many investors pricing in the possibility of two rate reductions by year-end.¹

This optimism was not confined to the U.S. By Thursday’s close, an index of global stocks had reached a new record high, having climbed over 20% from its recent lows, and the benchmark S&P 500 index stood just 1.5% shy of its own all-time high set in February.⁴ Adding to the positive mood was policy action from Europe. The European Central Bank (ECB) delivered a widely expected 25-basis-point interest rate cut, citing a more favourable inflation outlook, and signalled a readiness to provide further support to the region’s fragile economy.¹ This combination of cooling U.S. inflation and proactive European monetary easing created a favourable backdrop for risk assets, leading to steady gains across most major markets through the first four days of the week.

The Geopolitical Rupture (Friday)

The carefully constructed optimism shattered in the early hours of Friday, June 13, with breaking news of Israeli military strikes against Iran.¹ Israel announced it had targeted Iranian nuclear facilities and missile factories in an offensive dubbed “Rising Lion,” aimed at preventing Tehran from developing atomic weapons, and declared a state of emergency in anticipation of retaliation.⁹

The market’s response was instantaneous and brutal. A profound “risk-off” sentiment swept across the globe, triggering a cascade of selling that began in Asian markets and intensified as the trading day moved to Europe and North America.² The abruptness of this shift was starkly visible in equity futures, which plunged well before the opening bells in Western markets, signalling the widespread fear gripping investors.²

This single event completely inverted the week’s dominant market dynamics. The focus on nuanced economic data and central bank policy was replaced by a singular obsession with geopolitical risk. The key asset movements that defined Friday’s trading were a textbook example of a flight to safety:

• Equities: Global stock indices sold off sharply.²
• Commodities: Crude oil prices leaped on supply disruption fears, while gold rallied as a traditional store of value in times of crisis.⁵
• Currencies: The U.S. dollar, Japanese yen, and Swiss franc—all considered safe-haven currencies—strengthened as capital fled from riskier alternatives.⁹

The week’s events served as a powerful illustration of the fragility of market confidence. The optimism that had been meticulously built over four days, based on the careful analysis of complex economic data, was demolished within hours by one unpredictable geopolitical development. The speed and uniformity of the sell-off across continents suggest that the market’s underlying confidence was shallow and that investors were primed for a rapid retreat to perceived safety. This implies that the risk premium assigned to potential geopolitical conflicts was likely underestimated by the market heading into Friday, creating the conditions for a violent and sudden repricing of assets worldwide.

Table 1: Global Major Index Performance (Week Ending June 13, 2025)

Sources:.² Note: Weekly data for some indices was compiled from daily historical data where direct weekly figures were unavailable.

North American Markets: Rate Cut Hopes Dashed by Middle East Tensions

North American markets experienced a dramatic reversal of fortune, ending the week with losses that belied the optimism prevalent just a day earlier. U.S. indices were on a clear path to record their third consecutive week of gains before Friday’s sell-off wiped the slate clean.³ The Dow Jones Industrial Average fell 1.3% for the week, the S&P 500 slipped 0.4%, and the tech-heavy Nasdaq Composite shed 0.6%.³ The decline was significant enough to push the Dow back into negative territory for the year 2025, down 0.8% year-to-date.³

The Conflicting Economic Narrative

The week’s economic data releases in the U.S. presented a complex and somewhat contradictory picture for investors and the Federal Reserve to decipher. This push-and-pull between dovish inflation signals and hawkish labour market data created a volatile backdrop for monetary policy expectations.

On one hand, the inflation data was unambiguously positive for markets. The May Consumer Price Index (CPI) and Producer Price Index (PPI) both rose by a mere 0.1% month-over-month, coming in below the 0.2% consensus forecast.¹ This suggested that the impact of tariffs had not yet translated into significant consumer price pressures, and that businesses might be absorbing the costs to protect market share.¹¹ The core CPI, which excludes volatile food and energy prices and is closely watched by economists, also undershot expectations, rising 2.8% year-over-year against a forecast of 2.9%.¹ This data initially sent a strong signal that inflation was moderating, bolstering the case for the Federal Reserve to implement two interest rate cuts before the end of the year.¹

On the other hand, the May jobs report, released earlier in the week, painted a picture of a resilient labour market. Average Hourly Earnings grew by a robust 0.4%, beating expectations of 0.3%, and bringing the year-over-year wage gain to a strong 3.9%.¹⁴ This firm wage data, typically a harbinger of future consumer spending and inflationary pressure, caused a mid-week recalibration of rate cut expectations. Per Bloomberg data, the probability of a July rate cut fell from 28% to 16% following the report, and the total number of expected cuts for 2025 also decreased.¹⁴

While the headline jobs number appeared strong, a deeper look at the data revealed nuances that suggested underlying softness in the labour market. This is a critical point that the Federal Reserve would undoubtedly be analysing closely, but which was largely overshadowed by the week’s dramatic conclusion. The same report that showed strong wage growth also included downward revisions to the previous two months’ payrolls, subtracting a total of 95,000 jobs from the record.¹⁴ Even more significantly, the labour force itself was reported to have declined by over 600,000 people. A shrinking labour force can artificially suppress the unemployment rate by removing individuals from the denominator of the calculation, masking potential economic weakness. This raises a crucial question: is strong wage growth being driven by robust demand for labour, or by a diminishing supply of available workers? The latter scenario is a far less healthy sign for the economy and complicates the policy picture for the Federal Reserve.

The Geopolitical Impact

Friday’s geopolitical explosion completely reshuffled the deck. The sudden spike in crude oil prices introduced a new and significant inflationary threat, directly challenging the dovish narrative built on the soft CPI and PPI reports.⁵ This created an acute policy dilemma for the Federal Reserve ahead of its upcoming Federal Open Market Committee (FOMC) meeting. The central bank is now caught between conflicting mandates: should it respond to the emerging softness in the labour market and moderating core inflation by signalling an easier policy stance, or should it prioritise fighting the new risk of cost-push inflation stemming from a potential energy crisis? This sudden injection of uncertainty makes the Fed’s next decision far more difficult and its communication more critical than ever.¹³

Sector and Stock-Level Analysis

The market’s reaction on Friday was a textbook case of sector rotation driven by a geopolitical shock.

• Winners: The most obvious beneficiaries were companies in the energy and defence sectors. As crude oil prices soared, shares of major producers like Exxon Mobil (+2.7%) and Chevron (+2.3%) rallied on the prospect of higher profits.¹³ Simultaneously, the outbreak of direct military conflict between nation-states led to a surge in the stocks of defence contractors, with Lockheed Martin climbing 3.3% and Northrop Grumman gaining 4.8%.¹³
• Losers: Conversely, sectors highly vulnerable to increased fuel costs and nervous consumer sentiment were hit hard. Airline stocks fell, with United Airlines dropping 4.4%, and cruise lines like Carnival sank 4.9%.¹⁵ The risk-off sentiment also triggered a sell-off in high-growth, high-valuation technology stocks, as investors shed risk. Major names like Tesla, Nvidia, and Amazon all posted declines.¹³
• Spotlight on Oklo (OKLO): The nuclear energy firm Oklo experienced a particularly volatile week, highlighting a key long-term market theme. Its stock first surged nearly 30% after the company announced a critical contract to provide nuclear power to an Air Force base in Alaska. However, these gains were partially erased when the company followed up with a $400 million public stock offering.³ This volatility underscores the intense investor interest in the nuclear sector, which is seen as a crucial provider of the massive energy required to power data centres for artificial intelligence—a powerful secular trend driving investment decisions.³

Table 2: U.S. Key Economic Indicators (Week Ending June 13, 2025)

Sources:.¹ Note: Nonfarm Payrolls headline number was not explicitly stated in snippets, but ADP private payrolls, a precursor, was +37K vs +99K expected.

European Markets: Dovish Central Banks Can’t Offset Geopolitical Fears

European markets, which had started the week with a sense of relief, ended it mired in uncertainty as geopolitical fears from the Middle East overwhelmed the positive impact of local central bank action. Broad European equity indices, which had been lifted early in the week by dovish policy signals, reversed course sharply on Friday, finishing the week with a slight loss of 0.05%.¹ The sell-off on the final day was severe, with the Euro Stoxx 50 plunging 1.93%, Germany’s DAX losing 1.27%, and France’s CAC 40 falling 1.14%, wiping out all earlier gains.¹⁵

The Central Bank Divergence

A key theme in Europe this week was the increasingly divergent path of its central banks compared to the U.S. Federal Reserve. On June 5, the European Central Bank (ECB) took a decisive step, cutting its three key interest rates by 25 basis points. This move, which was the seventh consecutive rate reduction, brought the main deposit facility rate down to 2.00%.¹²

The ECB’s decision was underpinned by a tangible cooling in the region’s inflation. The central bank’s own staff projections for inflation in 2025 and 2026 were revised downward, primarily due to lower energy price assumptions.¹² This forecast was validated by hard data: the flash estimate for Eurozone inflation in May came in at 1.9%, falling below the ECB’s 2% target for the first time since September 2024.¹⁹ The deceleration was driven by a sharp slowdown in services inflation and a continued decline in energy prices.²⁰

Despite the rate cut, ECB President Christine Lagarde adopted a cautious and non-committal tone in her press conference. She explicitly stated that the Governing Council was “not pre-committing to a particular rate path” and would continue to follow a data-dependent, meeting-by-meeting approach.¹² This cautious stance, which she noted was shared by an “almost unanimous” majority of the council, proved prescient in light of the events that unfolded just days later.²¹

Underlying Economic Weakness

The dovish pivot from the ECB, as well as expectations for similar action from the Bank of England, was supported by a backdrop of persistent economic weakness across the continent. Soft labour and GDP data from the United Kingdom, coupled with disappointing industrial production figures from the wider Eurozone, painted a picture of a fragile economy struggling for momentum.¹ This economic fragility made the region particularly susceptible to the external stagflationary shock posed by a sudden and sharp increase in energy prices.

The ECB’s rate cut, while intended to provide support to this fragile economy, may have paradoxically highlighted the region’s primary vulnerability. The decision to ease monetary policy was predicated on the assumption of a continued disinflationary trend. The sudden oil price shock on Friday directly threatens that core assumption. As a major net importer of energy, the Eurozone is acutely sensitive to fluctuations in the price of oil and gas.²² A sustained increase in energy prices acts as a direct tax on European consumers and businesses, simultaneously dampening economic growth while stoking headline inflation.

This dynamic places the ECB in a difficult policy bind. If it continues to cut rates to support growth, it risks fueling inflation and further weakening the euro, which would make dollar-denominated energy imports even more expensive. Conversely, if it holds or raises rates to combat the new inflationary threat, it could choke off an already anemic economic recovery. The geopolitical shock has therefore severely constrained the ECB’s future policy options, validating President Lagarde’s decision to avoid any firm commitment to a future rate path.

Market and Asset Reaction

The market’s reaction on Friday reflected these fears. European equities fell by over 1% as investors priced in the negative implications of the conflict for regional growth and stability.⁴ In the fixed income markets, a flight to safety was evident. The yields on sovereign bonds, such as UK Gilts and German Bunds, fell (and their prices rose) as investors sought refuge in government debt and anticipated a more challenging economic outlook.¹ The euro, meanwhile, weakened against the U.S. dollar as the risk-off sentiment soured and the dollar’s safe-haven appeal grew.²²

Asian Markets: Regional Headwinds Compounded by Global Sell-Off

Asian markets bore the first brunt of the global risk-off wave on Friday, with indices across the region tumbling as news of the Middle East conflict spread. The sell-off was broad and deep, compounding the existing economic headwinds that several key Asian economies were already facing. The MSCI Asia ex-Japan index, a broad measure of the region’s equity performance, fell 1.1%.²

In Japan, the Nikkei 225 and the broader Topix index both declined by more than 1.2%.² In Greater China, Hong Kong’s Hang Seng index dropped 0.7%, while the Shanghai Composite fell by a similar margin.² Other major markets were also hit hard, with South Korea’s Kospi experiencing a significant decline as investors fled from risk.⁹

China’s Enduring Economic Struggles

Chinese markets entered the week already on weak footing, grappling with a challenging domestic economic environment. Investors have been contending with what analysts describe as “persistent deflationary pressures, weak domestic demand, and underwhelming trade data”.¹ Data released during the week confirmed these concerns, showing that producer deflation—a measure of falling prices at the factory gate—had worsened. This is a clear sign of industrial overcapacity and weak corporate pricing power, which can squeeze profit margins and deter investment.²³

The real-world impact of ongoing trade tensions was also laid bare by new data showing that Chinese exports to the United States suffered their largest decline since the COVID-19-induced shutdowns of early 2020.¹ This sharp drop underscores the significant economic toll that tariffs and trade friction are exacting on the world’s second-largest economy. Against this backdrop of internal weakness, the external shock from the Middle East conflict was particularly unwelcome, adding another layer of uncertainty for policymakers in Beijing who are already struggling to stimulate a sustainable recovery.¹

The Yen’s Paradoxical Strength

The crisis in the Middle East highlighted a unique and often challenging dynamic for Japan’s economy and its stock market: the paradoxical nature of the yen’s strength. In times of global stress and uncertainty, the Japanese yen is a traditional safe-haven asset, attracting capital from around the world.² This flight to safety was evident on Friday as the yen strengthened against the U.S. dollar.

However, this very strength is a double-edged sword for Japan. The nation’s economy is heavily reliant on its export sector, with corporate giants like Toyota and Sony deriving a substantial portion of their revenue from overseas markets. When the yen strengthens, the profits these companies earn in foreign currencies are worth less when converted back into yen. This directly pressures their earnings forecasts and, consequently, their stock prices. These export-heavy companies are major constituents of the Nikkei 225 index. Therefore, the same global turmoil that signals the yen’s “safety” simultaneously acts as a significant drag on the nation’s primary economic engine and its benchmark stock index. This negative feedback loop was visible on Friday, as automakers were among the leading decliners in the Japanese market.²

Impact of Middle East Tensions

The conflict in the Middle East acted as a powerful external shock that compounded the region’s existing pressures. The sell-off was widespread, hitting technology and export-oriented stocks particularly hard across Japan, South Korea, and Taiwan as investors braced for potential disruptions to global supply chains and a slowdown in global demand.⁷ The situation creates a more complex and challenging environment for the region’s policymakers. For the Bank of Japan, a stronger yen complicates its efforts to generate sustainable inflation. For officials in China, the added global uncertainty makes their task of reviving domestic confidence and growth even more difficult.

Indian Market Analysis: Geopolitics and Oil Rattle Dalal Street

The Indian stock market was violently shaken by the week’s geopolitical developments, with a brutal sell-off on Friday erasing all gains from the previous week and sending benchmark indices to sharp weekly losses. The BSE Sensex and Nifty 50 both fell by approximately 0.7% on Friday, but the session’s trading was characterised by intense fear, with the Nifty opening with a significant gap down of over 400 points from its previous close.⁶ The broader market indices also underperformed, indicating that the selling pressure was widespread.²⁴

Domestic Strength Overwhelmed

The severity of the market reaction was particularly notable because it occurred against a backdrop of exceptionally positive domestic economic news. Earlier in the week, data showed that India’s retail inflation, as measured by the Consumer Price Index (CPI), had cooled to 2.82% in May. This was not only a multi-year low but also came in well below market expectations, providing a strong fundamental underpinning for the economy.⁹ Under normal circumstances, such a positive inflation report would have been a powerful catalyst for a market rally. However, the events of Friday demonstrated that in a full-blown global crisis, risk flows and commodity price shocks can completely dominate even the most robust domestic fundamentals.

The Oil Shock’s Direct Hit

As a major net importer of crude oil, the Indian economy is acutely vulnerable to sharp increases in energy prices. The 8-10% surge in the price of Brent crude was therefore a direct and significant blow.⁶ The market’s reaction was a clear and logical rotation across sectors, as investors rapidly repriced the implications of higher oil prices.

• Losers: Companies whose fortunes are directly tied to the price of fuel were among the hardest hit. Shares of oil marketing companies like BPCL, HPCL, and IOC, which face margin compression from higher input costs, slid by as much as 3.5%. The aviation sector was dealt a double blow from surging crude prices and negative sentiment following an Air India crash, with shares of IndiGo and SpiceJet falling between 4% and 6%.² Adani Ports also saw its stock decline, a direct consequence of its operational exposure in Israel through its ownership of Haifa Port, which now faces heightened regional risk.²
• Winners: On the other side of the ledger, a few sectors benefited from the crisis. Upstream oil producers like ONGC saw their shares rise on the back of higher crude realisation prices. Defence stocks, including Bharat Dynamics and Hindustan Aeronautics, rallied strongly, with some climbing between 8% and 20%, as investors anticipated increased government defence outlays in a more volatile geopolitical environment.⁶

The immediate intervention by the Reserve Bank of India (RBI) to stabilise the rupee is a critical indicator of the systemic importance of this issue. As the U.S. dollar strengthened globally and capital began to flow out of emerging markets, the Indian rupee came under significant pressure, briefly weakening to around 86.20 against the dollar.⁶ A weaker rupee exacerbates the problem of an oil price shock, as it makes dollar-denominated oil imports even more expensive, creating the potential for a vicious cycle of imported inflation. The RBI’s prompt action to sell U.S. dollars from its foreign exchange reserves to cushion the rupee’s fall was not merely a routine market operation; it was a clear signal of how seriously policymakers view the threat of oil-driven volatility.⁶ This rapid response underscores that maintaining currency stability in the face of an energy shock is a top-tier policy priority, reflecting its crucial importance to India’s overall economic and financial stability.

Bond Market and Volatility

The ripple effects were felt across asset classes. In the bond market, the yield on the 10-year Indian government bond spiked to a five-week peak, as fixed-income investors priced in the risk of higher future inflation driven by the oil surge.⁶ Meanwhile, the India VIX, a widely watched gauge of expected market volatility, jumped by over 6%, providing a quantitative measure of the sharp increase in investor fear and uncertainty.²

Oceania Market Review: Commodity Strength Buffers Australian Equities

In a stark contrast to the widespread losses seen across most of the globe, the Australian stock market demonstrated remarkable resilience, largely buffered by its unique composition as a major commodity producer. The benchmark S&P/ASX 200 index managed to finish the week with a gain of approximately 0.6%, marking its fifth consecutive weekly advance, even as it posted a modest decline of 0.21% on Friday.¹⁰ The performance of New Zealand’s S&P/NZX 50 was more in line with global trends, with the index falling 0.8% on Friday.¹⁰

The Great Hedge: A Market Built for This Shock

The Australian market’s outperformance can be directly attributed to its heavy weighting in the resources sector, which acted as a natural and powerful hedge against the specific nature of the week’s geopolitical shock. As global investors scrambled for safety and braced for energy supply disruptions, the very assets that Australia produces in abundance soared in value.

• Energy Sector Surge: The energy sub-index on the ASX jumped by nearly 5% for the week, reaching its highest level since mid-February.¹⁰ This rally was driven by the sharp increase in global oil prices. Shares of major energy producers saw strong gains, with Woodside Energy, for example, rising 7.4% on Friday alone.²⁸
• Gold Sector Record: The flight to safety sent the price of gold soaring, providing a massive tailwind for Australian gold miners. The gold sub-index advanced by more than 4% for the week, closing at a record high.¹⁰ Major producers were among the market’s top performers, with Newmont Corporation gaining 5.3% and Northern Star Resources rising 5.1% on Friday.²⁸

The Other Side of the Market

The strong performance of the resource sectors, however, masked significant weakness elsewhere in the market, illustrating a sharp internal divergence. Sectors typically associated with a developed economy felt the pressure of the global risk-off move. Heavyweight financial stocks fell, with the “big four” banks—Commonwealth Bank, Westpac, NAB, and ANZ—all shedding value as concerns about a potential global economic slowdown grew.¹⁰ Technology stocks also declined, mirroring the global trend of investors moving away from growth-oriented, higher-risk assets.¹⁰

The week’s trading action perfectly illustrated the “barbell” nature of the Australian market. At one end of the barbell are the large banking, insurance, and consumer-facing companies that make it behave like a typical developed market, sensitive to global growth prospects and interest rate expectations. This end of the market weakened in response to the global turmoil. At the other end of the barbell are the massive resource companies, which act as a proxy for commodity prices and, in some cases, emerging market demand. The geopolitical shock created a stark divergence between these two ends, with the commodity side massively outperforming the developed market side. The net result was a slight overall gain for the index, a figure that conceals the intense push-and-pull dynamics that were occurring beneath the surface. This demonstrates that for global investors, Australia can function as both a risk-off hedge (via its gold producers) and a specific, event-driven play (via its energy producers) simultaneously.

Reserve Bank of Australia (RBA) Outlook

The geopolitical developments introduce a new variable for the Reserve Bank of Australia. The RBA had already cut its cash rate in May, and prior to Friday’s events, interest rate futures markets were pricing in an 86% probability of another 25-basis-point cut at the next meeting in July.³⁰ Many analysts expected this easing cycle to continue into 2026, driven by a slowing domestic economy and a cooling inflation outlook.³¹ However, the new inflationary impulse from a potential energy price shock could give the RBA reason to pause and adopt a more cautious stance, similar to the policy dilemma now facing the Federal Reserve and the ECB.

Key Thematic Drivers: Oil, Inflation, and the Flight to Safety

The week’s tumultuous market action was driven by a handful of powerful, interconnected themes that rippled across all asset classes and geographic regions. Understanding these drivers is key to deciphering the market’s behaviour and assessing the path forward.

The Oil Shock

The central catalyst for Friday’s market rout was the sudden and sharp spike in the price of crude oil. West Texas Intermediate (WTI) crude, the U.S. benchmark, jumped to approximately $73 per barrel, while Brent crude, the international standard, surged to around $74 per barrel. These moves represented a daily increase of roughly 8%.⁵

The primary driver of this surge was the acute fear of a major supply disruption in the Middle East. Iran is a significant oil producer within OPEC, and any damage to its production or export infrastructure could remove a substantial volume of crude from the global market. An even greater fear is the potential for the conflict to escalate and impact the Strait of Hormuz, the world’s most critical oil transit chokepoint. More than 20 million barrels of crude oil pass through this narrow waterway every day, and any disruption to this flow would have catastrophic consequences for the global economy.⁷ The oil spike was described by one analyst as an “economic shock that nobody really needs,” as it threatens to simultaneously slow global growth and fuel inflation.¹⁵

The Inflation Conundrum

The oil shock directly collided with the prevailing inflation narrative. Just as data from both the United States and Europe was confirming a welcome disinflationary trend, the energy price spike introduced a new and potent source of cost-push inflation.¹ This created an immediate and difficult policy conundrum for the world’s major central banks.

The Federal Reserve and the European Central Bank are now caught in a crossfire. On one hand, their domestic economies are showing signs of slowing, which would typically warrant easier monetary policy (i.e., lower interest rates). On the other hand, they face a new, externally-driven inflationary threat that could require a tighter policy stance to control. This dilemma significantly complicates their upcoming policy decisions and raises the risk of a policy error—either tightening too much and choking off a fragile recovery, or easing too much and allowing inflation to become entrenched.¹³

The Flight to Safety

The combination of geopolitical conflict and renewed inflation fears triggered a classic, textbook flight to the safety of traditional haven assets. This rotation was swift and global in scale:

• Equities: As the primary “risk-on” asset class, global stocks were sold off broadly and indiscriminately.²
• Commodities: Gold, the ultimate safe-haven asset, saw its price rise by over 1% to trade above $3,400 per ounce as investors sought a reliable store of value amid the turmoil.⁷
• Currencies: The U.S. Dollar Index (DXY), which measures the greenback against a basket of major currencies, rallied strongly. Other traditional safe-haven currencies, notably the Japanese yen and the Swiss franc, also strengthened as capital sought refuge.⁶
• Bonds: The reaction in the bond market was nuanced. While the initial oil spike caused a jump in U.S. Treasury yields due to inflation fears, the dominant theme for the week was a rally in sovereign government bonds (and a corresponding fall in yields) as investors prioritised capital preservation over returns.¹

Table 3: Global Asset Performance Snapshot (Week Ending June 13, 2025)

Sources:.¹ Note: Weekly changes are provided where available; some figures reflect Friday’s significant move.

Conclusion: Navigating a Landscape of Heightened Uncertainty

The week ending June 13, 2025, will be remembered as a pivotal moment when simmering geopolitical tensions boiled over, violently shifting the market’s focus from the nuances of economic data to the stark realities of conflict risk. The narrative of cautious optimism, built on moderating inflation and the prospect of monetary easing, was decisively swept aside by the spectre of a wider war in the Middle East.

The week’s events have fundamentally altered the investment landscape. While economic fundamentals such as inflation, growth, and employment, along with the policy paths of central banks, remain critically important, their influence is now secondary to developments between Israel and Iran. The trajectory of global markets in the near term is no longer in the hands of economists and central bankers, but rather in the hands of diplomats and military strategists.

Looking ahead, investor attention will be squarely and anxiously fixed on the potential for escalation or de-escalation in the Middle East. The price of crude oil will serve as the most critical real-time barometer of market sentiment, inflationary pressure, and perceived risk. Any further military action or disruption to oil supply routes, particularly the Strait of Hormuz, would likely trigger another severe wave of selling in risk assets and a further flight to safety. Conversely, any credible signs of diplomatic off-ramps or containment of the conflict could lead to a significant relief rally.

The final takeaway for investors is one of profound caution. The events of Friday have injected a significant, unquantifiable, and uncomfortable risk premium into all asset classes. The world is a more uncertain place than it was one week ago, and market volatility is likely to remain elevated until there is greater clarity on the geopolitical front. Navigating this new landscape will require patience, discipline, and a heightened awareness of risks that extend far beyond the economic realm.

Disclaimer

This report is provided for informational and analytical purposes only and is not intended to be, and should not be construed as, investment advice, a recommendation, or a solicitation to buy or sell any security or investment product. The information contained herein has been compiled from sources believed to be reliable, but its accuracy and completeness are not guaranteed.

Investing in financial markets involves risk, including the possible loss of principal. The price and value of investments may rise or fall, sometimes rapidly or unpredictably. Equity securities are subject to “stock market risk,” meaning that stock prices in general may decline over short or extended periods. Past performance is not indicative of future results. You may not invest directly in an index.

The opinions, estimates, investment strategies, and views expressed in this document constitute our judgment based on current market conditions as of the date of this report and are subject to change without notice. Opinions expressed herein may differ from the opinions expressed by other areas of our organisation. This material should not be regarded as investment research.

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